Merkozy to seek closer fiscal rules

LEGAL changes may be on the way to force overspending nations back into line, after crisis talks between German Chancellor Angela Merkel, French President Nicolas Sarkozy and new Italian Prime Minister Mario Monti yesterday.

The three want to change European treaties to make sure states only run small deficits in future.

“Each country has its budget but it is about the ones who do not respect the Stability Pact and can in future be called to account,” said former EU Commissioner Monti.

“We have had 60 violations of the Stability and Growth Pact, including by Germany, and these German violations were not punished. We are paying a high price for this now.”

The Pact was meant to keep budget deficits below three per cent of GDP, but was ignored, resulting in the current sovereign debt crisis.

Although future rules are being considered, there is not yet any evidence of a plan to extricate struggling governments from the huge burdens.

Merkel has already rejected the idea of a jointly issued euro bond, proposed on Wednesday by Commission President Barroso.

Yesterday she restated her view that they are “not necessary.”

Economists fear such bonds would rely on Germany’s willingness to pay the debts of less fiscally retrained countries.

Elsewhere in Europe, Hungary was hit by a downgrade from credit rating agency Moody’s late last night. Moody’s dropped the Hungarian government bond rating by one notch to Ba1 from Baa3, and will keep it on a negative outlook.

Earlier in the day Hungarian authorities said it was seeking a different deal with international lenders than its “very strict” 2008 bailout, while Standard & Poor’s deferred decision on a potential ratings downgrade until February after news of the planned talks.